5 Things to Know About China’s First Quarter GDP Growth

After two years of pronounced deceleration in growth, China posted an array of data for its first quarter this year that suggests an economy on the mend, if not on the rebound. The headline statistics show growth is still weak, but massive lending and industrial-scale pump-priming showed results in March. But the recovery also poses a dilemma for Beijing, providing a measure of comfort without necessarily advancing a goal of economic restructuring. Here are five takeaways from the numbers.

China’s economic growth expanded by 6.7% between January and March, officials said. That’s down from 6.8% in the previous quarter, and the slowest period since the first quarter of 2009, when the global financial crisis took China’s quarterly GDP growth down to 6.2%. The rate puts Beijing on track to meet its official growth target of between 6.5% and 7% for the full year.

The measurement is well within analyst expectations, and on par with a median forecast of 14 economists polled by The Wall Street Journal. Chinese media earlier this week were already hinting that growth numbers would be “slightly slower” than the 6.8% posted in the preceding quarter. What’s more interesting, analysts say, is all the other indicators that suggest Beijing is breaking out its old arsenal to revive the economy: massive lending and infrastructure spending, among others.

The government’s data showed all manner of lending expanded in the first quarter. Total social financing reached 2.34 trillion yuan ($360.8 billion) in March alone – on par with the estimated GDP of Denmark last year. Chinese financial institutions issued 1.37 trillion in new yuan loans in March, rocketing well past economists’ expectations. M2, the broadest measurement of money flowing through the economy, edged up 13.4% at the end of March compared with a year earlier, powering ahead of the government’s full-year target of 13%.

Friday’s data release showed that the government’s stimulus measures, including restarting major construction projects, are delivering short-term gains: industrial output rose 6.8% in March, fixed-asset investment by 10.7% in the quarter, and retail sales were up 10.5% in March – all outperforming the first two months. Property prices are sharply up in China’s major cities. Shanghai’s stock market has regained 14% in value since the start of March this year. Last month, China’s foreign-exchange reserves grew for the first time in five months.

Economists say it’s going to be tough for China to keep relying on stimulus measures to revive growth, even while they say they want to slough off excess industrial capacity. The government might attempt to keep growth steady at around 6.7% to 6.8% in the second quarter, but it would have to ease up in the second half this year if it intends to honor both policy goals, said RHB economist Zhang Fan. Also watch for U.S. interest rate hikes to hammer the yuan, trigger more capital outflows and dampen confidence in the Chinese economy.